Minimum Wage: Collective Disagreement

A referendum in Switzerland had the voters overthrow a proposal by Swiss unions to implement a national minimum wage. But not just any minimum wage – standing at SF$4000 (S$5600), it is a record breaking one. Its implementation could have lifted every single working citizen into a decent standard of living.

Yet the Swiss chose not to. Not the government, not businesses – it is the people whom voted against it. Their concerns are simple: they are worried that minimum wage would shut businesses, leading to job losses. Hurting the very people unions are trying to protect.

The foundation argument for minimum wage is that employers are nasty and will exploit workers. Well, it is true… if businesses could hire cheap, they will. But can they really? The “invisible hand of the market” provides for this thing called a market equilibrium. Given enough business demand in the market, employers will be hard pressed to look for a supply of workers. If they don’t offer a competitive salary, they can’t run their businesses.

Have you ever wondered what the motive of minimum wage is? Surely it is not because we want a homogeneous pay for all low-wage workers. The issue here is to protect workers from being exploited. If this is the case, why not re-design the minimum wage model?

So when Professor Tommy Koh says “We need not follow the practices for others…it is incumbent upon us to innovate and to deliver better governance and inclusiveness”, I agree.

The good Professor also said “every advanced economy has a minimum wage”. Now, that is not particularly accurate, as demonstrated by Switzerland. If he was referring to fiat minimum wage, then countries like Austria, Italy, Norway and Sweden amongst others also do not have the law.

Salaries should be heterogeneous. We are not commodities. Each individual’s skills, attitude and experience should command a unique pay package. It is wrong to say a cleaner cannot be any more productive because she does menial work. She can be trained out of job, into a better paying one. Her job could be redesigned so she does a little bit more than cleaning, and getting better pay. She could be provided tools to help her perform her role easier, smarter and safer. There is a Chinese saying that goes “the problem is dead, but the mind is alive”.

Singapore has a model of wage progression that is dubbed the “Progressive Wage Model”. It addresses the problem of homogeneous salary by asking for employers to upgrade the worker’s skills and productivity and then pay them more and give them career progression. In some cases, it compels businesses to either accept this model, or not be given the licence they need to operate.

Is this minimum wage in Singapore? Han Fook Kwang of The Straits Times seems to think so. In an essay to the newspaper he insists it is, despite the glaring differences in the Singapore system. Personally, I’m not too keen on this debate. As long as the policy lifts wages and helps narrow the income gap, we are travelling in the right direction.

The world is rich with examples on how the minimum wage has become more of a hinderance than a help. We also see no lack of arguments from the pro-min wage camp.

Minimum wage is not a miracle pill. The matter will never be concluded, there will always be disagreement. Whilst the academics, the politicians and the businessmen argue away about the matter, let us remember that workers need to eat.